Courtesy Ketut Subiyanto on Pexel.com

The heat is burning down, both literally and figuratively. Summer never felt this hot in Mumbai, despite regular temperatures for this time of the year; the metaphor really is for global and domestic capital markets. The high volatility both in debt and equity markets can be quite confounding. Moreover, coming out of a two-year pandemic, personal financial cashflows and budgeting have pretty much gone out the window.

So now, it’s not just about where to invest your money but also how to maximise earnings from that gig or startup idea or for that matter how to secure your job.

What’s also changed is this overreliance on social media to get money advice.

Just yesterday, I came across an Insta reel which had advice on how to improve your finances. It was simple advice, delivered in less than a minute. Here is what was suggested: take five green cardamom pods, a small green pouch, put the pods in the pouch and then keep this pouch in your wallet on any Wednesday. Doing this, the lady suggested, would help in stopping the ‘drain; of money from your wallet.

Another practical money reel, delivered by two young women cheering up the boring subject with their dancing prowess, was about the benefits of fixed deposits, but without any mention of how you can literally lose value in long term, bank fixed deposits thanks to inflationInflation is a common term thrown around in economics lessons and by politicians around election time. What it means in simple language is that prices of things you buy, stuff, keeps increasing every year. It happens because the economy in... More. It was a much-liked reel, just like another one they did on the benefits of a 15 year locked in exposure to the public provident fund (PPF), making it sound like the best investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... More when in reality, PPF rates are headed lower since the last 20 years and the trend is unlikely to change. Plus, if you have fifteen year money why not aim for inflationInflation is a common term thrown around in economics lessons and by politicians around election time. What it means in simple language is that prices of things you buy, stuff, keeps increasing every year. It happens because the economy in... More plus returns, which can grow wealth in a tax-efficient manner? Also no mention of the limited investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... More you can make in this and the cumbersome process involved in getting a partial withdrawal (leave aside that encouraging people to invest with a carrot of partial withdrawal, negates the entire premise of long term compoundingCompounding is the concept of earning return on both your principle investment and your profit. It is a way of calculating return that assumes you pull back your return till yesterday and remain invested so that any change in value... More). Again a much liked reel.

After watching these encouraging reels, it was clear that this is the right time to absorb some sincere investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... More hacks, ones which will make the summer heat feel cooler in years to come. So, here goes.

Simple money hacks you should follow this summer:

1. Focus more on saving

Strategies to invest right undoubtedly grab more eyeballs, however, the foundation of your future financial security, does not lie in the product you finally choose to invest in. Instead, the one action which will decisively take you in the direction of financial security and wealth creation is building the mundane and uninteresting habit of saving. It’s when you optimise your regular monthly savings, that you realise the potential for future wealth creation.

You may be thinking that of course, one has to save to invest. The challenge here is that you may end up saving only as much as you desire to invest in a given product or as much as your bank relationship manager tells you to invest. The process needs to begin not with how much you want to invest, rather the start is how much can you save while maintaining a suitable lifestyle. There is a whole lot of subjectivity here when it comes to defining a suitable lifestyle. Ideally, it’s one that allows you to enjoy your life, some entertainment, travel and the necessities taken care of. If after all this you are unable to save much, then consider cutting back on the entertainment while you optimise saving. It’s easier to save when you are younger, not solely because you may still be living in your parent’s home but also because, you may not have any dependents who need taking care of, lesser pressure to match up to the colleague who has just bought a new car, lower medical expenses and so on.

Expenses add up, yes earnings also grow but unless you have nurtured a good savings habit, chances are that with growth in earnings the enjoyment and entertainment spending will grow at a rate faster than your savings.

It may be too early to link your savings to specific goals, but the hack is to work towards saving at least 30%-40% of your income. This takes care of wealth creation over the next 2-3 decades whether you invest at 7% or 10% or 15% per annum.

2. Separate the investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... More time period

Going back to the bank fixed deposit and PPF reels, it’s true that both investments do have a place in one’s portfolio, but you have to consider the value of investing in a ten year fixed deposit at the rate of 5.5% per annum when inflationInflation is a common term thrown around in economics lessons and by politicians around election time. What it means in simple language is that prices of things you buy, stuff, keeps increasing every year. It happens because the economy in... More today is at least 6%-6.5% annually. Let’s dig deeper then, to see what the advantages of fixed deposits are. The foremost is capital safety, albeit, poor quality banks have defaulted on these in the last few years, but let’s assume that here we are only talking about good quality bank fixed deposits. There is capital safety and there is the certainty of income which both work in favour of fixed deposits.

Clearly, this is something very useful, if you need the money over the next few months or even a year or two later. It’s too short a time for you to take any chance with the capital amount and also you are better off knowing exactly how much you get back so that you can plan the goal without risk.

However, when you have 5 -10 or 15 years which you can invest for, you may not be as concerned about capital safety in the first 2-3-5 years. The focus then shifts to compoundingCompounding is the concept of earning return on both your principle investment and your profit. It is a way of calculating return that assumes you pull back your return till yesterday and remain invested so that any change in value... More returns alongside the volatility. Time is the best friend for compoundingCompounding is the concept of earning return on both your principle investment and your profit. It is a way of calculating return that assumes you pull back your return till yesterday and remain invested so that any change in value... More. For such investments low yielding bank fixed deposits are less relevant.

The hack for you is to separate your investing needs into short and long duration. Anything below two years is considered a short duration and a long duration is anything more than five years. The in-between period can have a mix of what you do in short and in long. For short term investing, the focus needs to be on products with capital safety and stable returns rather than high yield, and for long term investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... More it’s growth, compoundingCompounding is the concept of earning return on both your principle investment and your profit. It is a way of calculating return that assumes you pull back your return till yesterday and remain invested so that any change in value... More, quality and tax efficiency that matters most. The same investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... More will rarely combine for both baskets.

3. Keep it flexible

Whether you are investing your saving in short term or long term options, it’s always more useful to keep it flexible. Flexibility in investments comes in two ways, one through the product structure and the second through quality. Product structures which lock in your money can feel very limiting, especially in times of uncertainty. The pandemic has shown us that life is anything but predictable. You don’t know when you may need your money or when the product you invested in becomes an underperformer. In both cases, you should be able to action a change which is within your control rather than being restricted because of a lock in. Secondly, focus always on quality.

A poor quality product, be it quality of the manufacturer or quality of the portfolio, has the potential to leave you in the lurch when you need your funds the most.

This battle played out more than once over the last few years as individual investors lost money in bank deposits and in mutual funds thanks to poor quality. Usually the onboarding of poor quality happens in the chase for higher return, but once you lose your money, the entire opportunity itself gets lost. It’s not worth typing up your money for a bit of extra return in inflexibility led by poor quality.

If all you do this summer is try out these three money hacks …

• Focus more on optimising savings rather than chasing the best investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... More product
• Divide your investments into short and long term baskets
• Be sure to keep your investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... More flexible

… by the time the season changes, you are already ahead of the game!

Just as I was finishing this article, I took a short break and came across another super Insta reel which was nudging viewers to recite a six digit numerical code if they wanted to be successful in buying a house. The reel had over 3000 likes. It’s making me doubt a lot of things in life, I have now written down the six-digit code.

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